Behavioral economics and crowdsourcing

Behavioral economics uses social, cognitive and emotional factors in understanding the economic decisions of consumers. It integrates insights from psychology with economic theory.

Social vs. market norms

Imagine you are at a dinner at your mother-in-law’s house. Try to answer the following question:

• Would paying be a good idea?

Answer to this questions seems to be pretty straightforward. It is simple, because we assume to apply social norms here. According to social norms, that are defined as derived from our social nature and our need for community, you wouldn't be required to pay for the meal.

However, from the market norms' perspective - based on costs and benefits - you would.

Working for a cause vs. working for money

In many cases people work more for a cause than for cash. Let's analyze the results from the AARP (American Association of Retired Persons) study. When lawyers were asked to offer less expensive services to needy retirees ($30 an hour) – they declined. However, when asked to offer free services – they agreed.

What does it tell us?

People act differently under social and market norms.

Do they also perform differently?

Performance under market vs. social norms

Let's now have a look at how working under social vs. market norms affects performance.

Case 1: Working for money
Students were asked to perform a boring task for 5 minutes

• Group 1 didn’t get paid
• Group 2 got 5$
• Group 3 got 50 cents

Results:

• Group 1: best performance
• Group 2: slightly worse
• Group 3: the worst 

Case 2: Working for a gift
The same experiment with gifts:

• Group 1: no gift
• Group 2: chocolate worth 5$
• Group 3: chocolate worth 50 cents

Results:

• All three groups had the same performance

Even small gifts keep us in the social exchange world – and away from market norms

Case 3: Work for an explicitly priced gift

• What about “50-cent snickers bar” and “five-dollar box of Godiva chocolates”?

Results:

• The same performance as with money: the students reacted to the explicitly priced gifts the same way they reacted to cash

Once market norms enter our considerations, the social norms are pushed out

Summary

Heyman and Ariely (2004) distinguish between monetary markets and social markets:

• Monetary markets are highly sensitive to the magnitude of compensation, whereas social markets are not
• Money market: effort depends on reciprocity, the amount of compensation directly influences individuals’ level of effort
• Social market: effort is shaped by altruism, the amount of compensation is irrelevant
• Explains a well established observation: people sometimes expend more effort for no payment (vs. low payment)
• Mixed markets closely resemble monetary market: signaling that a compensation is equivalent to money invoke market norms

Crowdsourcing and open source projects operate under social norms. As research shows merely activating the concept of money completely change the setting and heavily influence people's performance.

Next post will cover some other aspects of psychological concept of money. Stay tuned!

Source: Heyman, James, and Dan Ariely. "Effort for payment a tale of two markets."Psychological Science 15.11 (2004): 787-793.